Pakistan’s Rs7.2trn annual debt burden should finance growth-generating activities, says think tank

ISLAMABAD: Economic Policy & Business Development (EPBD) a think tank, called for fundamental restructuring of Pakistan’s debt utilisation, advocating that borrowed resources be diverted from unproductive consumption toward productive economic investment.

EPBD maintained that Pakistan’s Rs7.2 trillion annual debt burden should finance growth-generating activities rather than subsidising banking profits and inefficient state-owned enterprises.

The think tank claimed that the World Bank article in United Nations Development Programme (UNDP) latest development report validates this position, explicitly stating that Pakistan’s debt is “mostly used to finance consumption rather than investment” and that “public borrowing continues to crowd out private sector credit.”

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The institution documented that Pakistan “contracts new debt equal to around 28% of GDP annually” while allocating merely “2% of GDP” to development spending - a stark indicator of resource misallocation. Moreover, EPBD had stated that the ratio of current consumption to actual development deteriorated from 2.2:1 to 10.3:1 over a period of 15 years, demonstrating systematic shift away from productive investment.

EPBD argued that Pakistan’s current approach wastes borrowed capital on guaranteed banking returns through government bond purchases and state-owned enterprises (SOE) subsidies that generate no economic returns.

Instead, the debt should finance manufacturing expansion, export infrastructure, technology adoption, and private sector development that creates employment and generates sustainable returns to service future obligations, the think tank said.

EPBD added that Pakistani businesses face 11% financing costs compared to 5.5% regional averages, making them uncompetitive while banks earn guaranteed profits from public funds. With 59% of government debt in floating-rate instruments, reducing policy rates from 11% to 6% would generate Rs3 trillion annually - resources currently transferred to financial institutions rather than productive economic activities.

It further stated that the World Bank confirmed that Pakistan “achieved a primary surplus in fiscal year 2025,” providing fiscal space to redirect debt utilization. Rather than continuing current patterns of consumption-focused borrowing, EPBD advocated channeling these resources toward manufacturing competitiveness, export development, and business expansion that builds Pakistan’s capacity to service debt through productive economic activity.

Regional competitors demonstrate superior performance by utilising borrowed funds for business development and industrial expansion rather than banking sector subsidisation and SOE support. Their approach generates 6% annual growth by directing debt toward activities that create value, employment, and sustainable economic returns, according to EPBD.

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EPBD maintained that Pakistan must choose between what it called wasteful debt utilisation that enriches financial institutions and SOEs versus productive debt deployment that builds economic capacity.

The organisation advocated immediate policy realignment to redirect borrowed resources from unproductive consumption toward manufacturing development, export infrastructure, technology adoption, and private sector expansion that generates sustainable returns and employment.